The Bank of England took steps on Friday to keep banks lending through 2021 as Britain deals with the COVID pandemic and a big change in its trading relationship with the European Union.
The central bank said the counter-cyclical capital buffer – extra money banks must set aside during economic good times – would be held at zero until at least the last quarter of 2021.
Banks would not need to implement any future change until the end of 2022.
“Some headwinds to banks’ capital ratios are … anticipated over coming quarters as unemployment rises, business insolvencies rise from current low levels, and risk weights on banks’ exposures increase,” the BoE said in a half-yearly assessment of the health of the financial system.
“Nevertheless, the major UK banks can absorb credit losses in the order of 200 billion pounds, much more than would be implied if the economy followed a path consistent with the Monetary Policy Committee’s central forecast,” it added.
The BoE also reiterated that it did not plan to relax financial standards after a post-Brexit transition period ends on Jan. 1.
“Irrespective of the particular form of the UK’s future relationship with the EU … the Financial Policy Committee remains committed to the implementation of robust prudential standards in the UK,” it said.